BEIJING, April 24 (Xinhua) -- After decades of fruitful cooperation with China's automobile industry -- mostly through joint ventures, transnational auto giants are digging deeper into the world's largest car market.

German car maker Volkswagen AG, the biggest auto producer in Europe, is eyeing great potential in China's west after making a fine living in the country's southern regions.

Volkswagen on Monday signed a contract to build a plant in Xinjiang Uygur autonomous region with China's Shanghai Automobile Industry Corporation (Group). Meanwhile, it agreed to a 25-year extension of partnership with China FAW Group Corporation.

The deal was sealed during German Chancellor Angela Merkel and Chinese Premier Wen Jiabao's visit to Volkswagen headquarters in Wolfsburg, 230 km west of the German capital of Berlin.

During the tour, Wen said Sino-German cooperation in the car industry is a very important part of all-round bilateral cooperation, voicing his belief that cooperation in this field will continue and attain a new level.

China has been the world's biggest auto producer and consumer for three consecutive years.

With 27 percent of its cars sold in China last year, Volkswagen sold a record 633,000 vehicles in the country in the first quarter of 2012. China has been the German company's largest single market for years.

At present, auto production is over-centralized in China's coastal and central areas, while west China will become the fastest-growing market in the near future, an official from the the National Development and Reform Commission, the country's top economic planner, told Xinhua.

He said it is courageous for Volkswagen to invest in the west, which lags behind other parts of the country in terms of the investment environment and human resources.

Aanalysts said the move will be a win-win one as Volkswagen will contribute to the local economy and increase job opportunities, and on the other hand, the company will gain local market share.

They said joint ventures still play a positive role in improving the research and development ability of domestic companies, as well as providing products, technology and services.

In an effort to transform its joint ventures into real car factories from assembly plants, Volkswagen is working with its two joint ventures to develop their own brands.

Shanghai Volkswagen and FAW-Volkswagen plan to invest a record 14 billion euros (18 billion U.S. dollars) in China from 2012 to 2016. The money will be used to build environmentally friendly plants and produce more efficient cars.

Volkswagen's plants in Nanjing and Chengdu, and those under construction in Yizheng, Foshan and Ningbo will use advanced technology to achieve green production, in order to set up a milestone in China's auto industry, the company told Xinhua.